BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of Southern California Edison Company (U 338-E) for Authorization to Incur and Recover Costs Necessary to Determine Feasibility of a Clean HydrogenPower Generation Plant

A.07-05-020

Date Filed: May 17, 2007 Hearing Dates: October 9-10, 2007

SOUTHERN CALIFORNIA EDISON COMPANY’S (U 338-E)OPENING BRIEF

Douglas K. Porter Walker A. Matthews

Attorneys for SOUTHERN CALIFORNIA EDISON COMPANY

2244 Walnut Grove Avenue Post Office Box 800 Rosemead, California 91770 Tel: (626) 302-6879 Fax: (626) 302-3990 E-mail: walker.matthews@sce.com

Dated: October 29, 2007 1424352

SOUTHERN CALIFORNIA EDISON COMPANY'S OPENING BRIEF

Table Of Contents Section Page

DM1424352 -ii-

I. INTRODUCTION AND RECOMMENDATIONS........................................................................1

II. BECAUSE SCE’S PROPOSED FEASIBILITY STUDY PROMOTES THE PUBLIC INTEREST AND CALIFORNIA’S GOAL OF REDUCING GHG EMISSIONS, THE COMMISSION SHOULD APPROVE SCE’S APPLICATION ...............................................................................................................................2

A. SCE’s Proposed Study Is an Important Step in Advancing Clean Power Generation............................................................................................................................2

1. California Public Policy Favors Clean Power Generation and Reduction of GHG ...................................................................................................2

2. Clean Hydrogen Power Generation Is an Emerging Clean Coal Technology ..............................................................................................................4

a) IGCC Plant Technology...............................................................................5

b) Sequestration Technology............................................................................5

3. SCE’s Proposed Feasibility Study Furthers California’s Public Policy Goals .............................................................................................................6

4. SCE’s Proposed Study is Not Duplicative of Other Studies or Efforts ......................................................................................................................8

B. SCE’s Proposed Study Should Be Funded by Ratepayers...................................................9

1. Each Component of the Proposed Study is Necessary to Determine the Feasibility of a CHPG Plant...............................................................................9

a) Property and Commodity Options .............................................................10

b) The FEED Study........................................................................................11

c) The Carbon Sequestration Evaluation .......................................................11

d) The Ability To Permit Assessment ............................................................12

e) Because the Scope of this Application Is a Feasibility Study, the Costs Should Be Recovered From Ratepayers .........................13

C. SCE Intends to Make the Results of the Study Public.......................................................15

D. The Intervenors’ Concerns about SCE’s Affiliates Are Unwarranted...............................16

SOUTHERN CALIFORNIA EDISON COMPANY'S OPENING BRIEF

Table Of Contents (Continued)Section Page

DM1424352 -iii-

E. SCE’s Proposed Costs and Ratemaking Treatment Are Reasonable.................................17

III. CONCLUSION..............................................................................................................................19

DM1424352 -1-

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of Southern California Edison Company (U 338-E) for Authorization to Incur and Recover Costs Necessary to Determine Feasibility of a Clean HydrogenPower Generation Plant

A.07-05-020

Date Filed: May 17, 2007 Hearing Dates: October 9-10, 2007

SOUTHERN CALIFORNIA EDISON COMPANY’S (U 338-E)OPENING BRIEF

I.

INTRODUCTION AND RECOMMENDATIONS

Pursuant to the schedule set forth in the August 1, 2007 Scoping Memo and Ruling of

Assigned Commissioner and Administrative Law Judge, Southern California Edison Company

(SCE) respectfully submits this opening brief in support of its Application for Authorization to Incur

and Recover Costs Necessary to Determine Feasibility of a Clean Hydrogen Power Generation

(CHPG) Plant. The testimony and evidence submitted in this proceeding, as well as California

public policy, strongly favor the California Public Utilities Commission’s (Commission) approval of

this Application. It is undisputed that a significant and present need exists to advance technologies

that reduce greenhouse gases (GHGs) and that California has recognized the need to take a leading

role in these efforts. SCE’s proposal to study the technical feasibility and commercial

reasonableness of a coal-fired clean hydrogen Integrated Gasification Combined Cycle (IGCC) plant

with carbon sequestration is a significant and valuable step in this process.

Notably, each of the intervenors believes that a feasibility study such as the one SCE

proposes should be conducted, and the testimony of Californians for Renewable Energy, Inc.

DM1424352 -2-

(CARE) and Clean Energy Systems, Inc. (CES) lends significant support to SCE’s Application.1

The objections of the remaining intervenors – Division of Ratepayer Advocates (DRA), the Western

Power Trading Forum (WPTF), Independent Energy Producers Association (IEP), and NRG Energy,

Inc. (NRG) – are quite limited in scope, and SCE believes that it has adequately addressed those

objections through its rebuttal testimony and the testimony during the two days of hearings before

the Commission. Indeed, the testimony elicited upon cross-examination of SCE’s witnesses only

confirmed the need for and propriety of SCE’s proposed feasibility study.

SCE’s Application promotes California public policy favoring the pursuit of clean energy

sources and carbon sequestration, as expressed in Assembly Bills 32 and 1925, Senate Bill 1368, and

other legislative and executive mandates and pronouncements. Moreover, the costs associated with

the proposed feasibility study are appropriately recovered from ratepayers because California

ratepayers will benefit from the study and the study is in the broad public interest of advancing a

baseload plant technology that will use domestic fuels while reducing GHG emissions.

Accordingly, SCE respectfully requests that Commission approve its Application to incur

and recover the costs associated with its proposed study to determine the feasibility of a CHPG

plant.

II.

BECAUSE SCE’S PROPOSED FEASIBILITY STUDY PROMOTES THE PUBLIC

INTEREST AND CALIFORNIA’S GOAL OF REDUCING GHG EMISSIONS, THE

COMMISSION SHOULD APPROVE SCE’S APPLICATION

A. SCE’s Proposed Study Is an Important Step in Advancing Clean Power Generation

1. California Public Policy Favors Clean Power Generation and Reduction of GHG

California leads the nation in efforts to reduce greenhouse gas emissions. On June 1, 2005,

Governor Schwarzenegger signed Executive Order S-3-05, establishing three target reduction levels

for GHG emissions in California: 2000 levels by 2010, 1990 levels by 2020, and 80 percent below

1 See CARE/Boyd, Ex. 300; CES/Devanna, Ex. 400.

DM1424352 -3-

1990 levels by 2050.2 The California Legislature promptly codified Executive Order S-3-05, and in

September 2006 the Governor signed into law Assembly Bill 32, also known as the California

Global Warming Solutions Act of 2006. Among other things, AB 32 requires that the California Air

Resources Board (CARB): (1) establish a statewide greenhouse gas emissions cap for 2020, based

on 1990 emissions, by January 1, 2008; (2) adopt mandatory reporting rules for significant sources

of greenhouse gases by January 1, 2009; (3) adopt a plan by January 1, 2009 indicating how

emission reductions will be achieved from significant greenhouse gas sources via regulations,

market mechanisms, and other actions; and (4) adopt regulations by January 1, 2011 to achieve the

maximum technologically feasible and cost-effective reductions in greenhouse gas, including

provisions for using both market mechanisms and alternative compliance mechanisms.3

Senate Bill 1368, also signed into law in September 2006, imposes GHG emission standards

on baseload generation. Specifically, under SB 1368 baseload generation facilities must have

emission levels that are no higher than natural gas, combined-cycle power plant levels. This

standard applies even if the power is generated outside of California and imported into the state.4

The California legislature specifically has expressed interest in exploring alternatives for

capturing and disposing of industrial carbon dioxide. Assembly Bill 1925 requires the California

Energy Commission (CEC) to study and make “recommendations for how the state can develop

parameters to accelerate the adoption of cost-effective geologic sequestration strategies for long-

term management of industrial carbon dioxide.”5 The CEC issued its draft report on carbon capture

and sequestration on September 21, 2007, and a final report is expected in early November 2007. In

its draft report, the CEC emphasized the importance of real-world sequestration models: “Over time,

the economics of CO2 capture are expected to improve due to technology refinements, success with

2 See California Exec. Order No. S-3-05 (June 1, 2005), available at http://www.dot.ca.gov/hq/energy/ExecOrderS-3-05.htm.

3 See Assembly Bill 32 (Nunez), Chapter 488, Statutes of 2006. 4 See Senate Bill 1368 (Perata), Chapter 598, Statutes of 2006. 5 See Assembly Bill 1925 (Blakeslee), Chapter 471, Statutes of 2006.

DM1424352 -4-

novel technologies, and ‘learning-by-doing’ to enhance capital utilization and efficiencies through

commercial-scale applications.”6

2. Clean Hydrogen Power Generation Is an Emerging Clean Coal Technology

SCE’s Application seeks authorization to incur and recover costs necessary to determine

whether clean hydrogen power generation (CHPG) is a technically feasible and commercially

reasonable technology. CHPG is an emerging “advanced” clean coal technology that seeks to

produce electric power from coal with minimal GHG emissions by capturing and sequestering

carbon dioxide and burning a hydrogen fuel. Unlike a pulverized coal plant, CHPG technology

removes carbon dioxide prior to combustion and isolates it from the environment through

underground sequestration rather than releasing it into the atmosphere. The carbon may be

sequestered in deep and depleted oil formations following its use in an enhanced oil recovery (EOR)

process, or it may be stored directly in deep saline aquifers or other appropriate geologic formations.

A diagram of the CHPG process, set forth in the testimony of SCE witness Mark Nelson,7 is

reproduced below:

6 See California Energy Commission, Geologic Carbon Sequestration Strategies For California: The Assembly Bill 1925 Report To The California Legislature (Sept. 21, 2007 Draft), available at http://www.energy.ca.gov/2007publications/CEC-500-2007-100/CEC-500-2007-100-SD.PDF, at 6.

7 SCE/Nelson, Ex. 1/1C at 1-2, Figure I-1.

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SCE’s proposed feasibility study of CHPG technology as a means of reducing GHG emissions is

unique in several ways. Although both coal gasification and gas processing are fairly well-

established technologies on their own, the integration of the two technologies on a commercial scale

through CHPG is a much newer process.8 In addition, a significant part of SCE’s proposed study

includes advancing the technology related to various geologic sequestration alternatives, saline

aquifers in particular. This saline aquifer sequestration evaluation is a unique feature of SCE’s

proposed work compared to other IGCC projects that are currently under development.9

a) IGCC Plant Technology

Coal serves as a fuel in both conventional pulverized coal plants and IGCC power plants.

But unlike a pulverized coal plant, an IGCC plant converts coal to a fuel gas for a combustion

turbine rather than burning it to make steam for a steam turbine.10 This fuel gas is commonly known

as synthesis gas or “syngas” and is predominately carbon monoxide and hydrogen.11 The synthesis

gas is under high pressure, and prior to combustion, sulfur, mercury, and carbon dioxide may be

removed.12 A more detailed description of this so-called “gasification process” is set forth in the

testimony of witness Malcolm Anderson, the project manager for the feasibility study of the IGCC

plant and sequestration testing, and is incorporated herein by reference.13

b) Sequestration Technology

In carbon capture and sequestration, carbon dioxide is injected into geologic formations as a

supercritical fluid that has the density of a liquid but the viscosity of a gas, which makes it very

mobile.14

8 Id. at 2. 9 Id.10 SCE/Anderson, Ex. 1/1C at 19. 11 Id. 12 Id.13 Id. at 19-21. 14 Id. at 24.

DM1424352 -6-

The supercritical carbon dioxide is trapped in large geologic formations by a layer of

impermeable rock such as slate or shale, usually several hundred feet thick.15

Two types of geologic sequestration are under consideration in SCE’s proposed study:

depleted oil reservoirs and saline aquifers. Carbon dioxide may be used in a process called enhanced

oil recovery (EOR), in which the carbon dioxide enables the extraction of oil and gas from reservoirs

that have otherwise been largely depleted. It may then be possible to sequester the carbon dioxide

used in the EOR process in those same depleted oil reservoirs.16 Alternatively, carbon dioxide may

be injected into deep saline aquifers that are unsuitable as sources of drinking water.17 It is not yet

known which of these sequestration alternatives is the more technically feasible and commercially

reasonable approach.

3. SCE’s Proposed Feasibility Study Furthers California’s Public Policy Goals

SCE is contributing in a number of ways toward the clean energy goals expressed in and

mandated by AB 32, SB 1368, and AB 1925, including by (1) operating and maintaining its existing

fleet of generation, which consists largely of its non-GHG emitting nuclear and hydroelectric

facilities, along with its Mountainview gas-fired CCGT plant; (2) continuing to pursue and sign

contracts with renewable (wind and solar) plants; and (3) supporting the aggressive use of energy

efficiency and demand response programs at levels that are cost-effective, feasible and realistic.18 In

addition, SCE is investigating the development of other low- or non-GHG emitting generation

sources, including the new CHPG generating plant described above.19

In the words of SCE witness Mr. Nelson, “Southern California Edison is looking at this,

looking at AB 32, SB 1368, the totality of California policy direction and regulation and looking for

ways for a lower carbon future. And this is one of those possibilities.”20 SCE proposes, through its

study, to determine whether an IGCC plant with carbon sequestration is a technically feasible and

15 Id. at 25. 16 Id. at 24-26. 17 Id. at 27. 18 SCE/Nelson, Ex. 1/1C at 8-9. 19 Id.20 SCE/Nelson, 10/9/07 Transcript (Tr.), page 104, lines 16 to 20 (104:16-20).

DM1424352 -7-

commercially reasonable source of electric power. CHPG technology uses a plentiful domestic fuel

supply (coal), but has significantly reduced GHG emissions compared to conventional pulverized

coal generation and traditional CCGTs.21 Whatever the result of SCE’s study, the public interest

will be served – by the possible construction of a CHPG plant, in the best case, and by the significant

advancement of clean coal and sequestration research, in the worst case. As Mr. Nelson explained

during the hearing, this is exactly the type of “learning by doing” that the CEC has emphasized is

central to the development of sequestration technologies.22

Notably, none of the intervenors has expressed any real disagreement with the notion that

CHPG technology has enormous potential for the reduction of GHGs and should be the subject of a

feasibility study.23 In fact, the testimony of CARE and CES underscores the importance of

establishing the feasibility of a baseload plant technology that will use domestic fuels while reducing

greenhouse gas emissions.24 There is simply no debate that advancing CHPG technology

significantly supports California’s ambitious goals for reducing GHG emissions. Mr. Nelson

explained SCE’s view of the benefits of its proposed feasibility study:

The benefits associated with this, again, you know, I think probably best said in SB 1368 where the legislature is trying to move forward and explicitly they talk about taking a proactive position against what could be very unfavorable carbon markets, carbon taxes. So the state is moving ahead to try to protect the State of California from what could be onerous taxes on carbon or restrictions on carbon.So it’s our view here that for approximately 45 cents per customer month for two years – and the ratemaking is completely separate of this, this is just to be sort of across the period of time the work would be occurring – that this has the potential to help us understand how to use coal, which is a relatively high-carbon feedstock, in a low-carbon way, which would then benefit – has the potential to benefit the ratepayers, you know, substantially by reducing exposure to carbon dioxide.25

21 A typical pulverized coal plant emits approximately 2,460 pounds of carbon dioxide per megawatt-hour (MWh), a combined cycle natural gas plant (such as SCE’s Mountainview facility) approximately 960 pounds per MWh, and an IGCC without carbon capture and sequestration approximately 2,180 pounds per MWh. In contrast, the CHPG technology with carbon capture and sequestration that SCE is exploring would emit approximately 221 pounds per MWh. SCE/Nelson, Ex. 1/1C at 3.

22 SCE/Nelson, 10/9/07 Tr. at 134:4-13 (“[T]his is the time to get work underway and to learn by doing and to advance the state of technology and also understand our potential long-term area better for sequestration, the southwestern United States.”)

23 See, e.g., NRG, 10/09/07 Tr. at 123:8-9 (NRG Energy, Inc. describing opposition as a “semi-protest” and stating “We’re not really opposed to people studying how to make energy better.”)

24 CARE/Boyd, Ex. 300; CES/Devanna, Ex. 400. 25 SCE/Nelson, 10/09/07 Tr. at 43:1-18.

DM1424352 -8-

The CHPG plant that SCE proposes studying also has benefits beyond the reduction of GHG

emissions. CHPG technology enhances energy security by utilizing domestic coal.26 The proposed

CHPG plant would be a baseload resource fueled by a low carbon fuel gas made from gasified coal,

providing fuel diversity and a hedge against the volatility inherent in the market price of natural

gas.27

4. SCE’s Proposed Study is Not Duplicative of Other Studies or Efforts

The Commission and some intervenors have expressed concern that SCE’s proposed study

may be duplicative of other efforts. To the contrary, as SCE’s witnesses have explained, SCE’s

Application seeks to study the feasibility of a CHPG plant that will, if ultimately constructed, be

unique among those currently in use or under development in the United States. For example, of the

12 IGCC projects operating worldwide, only four use coal as a feedstock and none currently includes

carbon capture and sequestration; of the 15 IGCC projects currently under design or development,

only four are being designed to include carbon capture and sequestration in their initial design, and

SCE’s proposed study is the only one that seeks to advance the state of saline aquifer sequestration

in the Southwest.28

In addition, SCE’s proposed facility is unique in that it will use a hydrogen-rich fuel, which

permits sequestration of a higher degree of carbon.29

SCE also hopes to utilize other resources to maximize the benefits of its proposed study.

SCE’s partnership with the Southwest Regional Partnership (SWP) is a prime example. As Mr.

Nelson explained during the hearing, SCE’s payment of the approximately $20 million it seeks for

carbon capture and sequestration evaluation will result in total funding of at least $90 million when

the Department of Energy’s (DOE) Phase III funding is considered.30 In this way, SCE may be able

26 SCE/Nelson, Ex. 1/1C at 3. 27 SCE/Nelson, Ex. 1/1C at 9. 28 SCE/Nelson, Ex. 1/1C at 3; SCE/Anderson, Ex. 1/1C at 21-22. 29 SCE/Nelson, 10/9/07 Tr. at 112:2-18. 30 SCE/Nelson, 10/9/07 Tr. at 27:13-28:16, 32:27-33:24.

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to “leverage” the funding it seeks through this Application to the benefit of SCE’s ratepayers and the

public as a whole.31

B. SCE’s Proposed Study Should Be Funded by Ratepayers

1. Each Component of the Proposed Study is Necessary to Determine the

Feasibility of a CHPG Plant

Each phase of SCE’s proposed study – from the property and commodity options to the

Front-End Engineering Design (FEED) study and sequestration evaluation to the ability-to-permit

assessment – is necessary to determine whether a CHPG plant is technically feasible and

commercially reasonable and to provide a conceptual estimate of its costs and performance. Each is

designed to address one or more of the factors that are critical to evaluating the viability of a CHPG

facility utilizing carbon sequestration, including fuel supply, water supply, carbon sequestration

geology, transmission issues, and permitting restrictions.

Because the feasibility of CHPG depends on several important site-specific factors, SCE

must conduct its feasibility analysis in the context of a specific site. To this end, SCE has used

Project Development Division (PDD) funds authorized by the Commission in Decision 06-05-016 to

retain URS Corporation (URS), the world’s largest engineering design firm,32 to conduct a Site

Identification Study to identify potential site areas.33 Site areas have been identified as a result of

certain go/no-go criteria called “exclusion criteria” and “preference and avoidance criteria.”34

Although site areas in several states have been evaluated and found viable, the preference and

avoidance criteria suggest that Utah and Wyoming may have the most favorable coal, water supply,

and sequestration geology.35 Once the most promising site areas are identified, actual sites or

properties within those areas will be located, and URS and SCE will identify, through a ranking

process, the top four sites.36

31 Id.32 See http://www.urscorp.com.33 SCE/Anderson, Ex. 1/1C at 29. 34 Id. at 30. 35 Id. at 31; SCE/Anderson, 10/10/07 Tr. at 166:23-168:8. 36 SCE/Anderson, Ex. 1/1C at 31.

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SCE expects to then obtain two- to three-year property options or leases on the top four sites

to perform site-specific engineering evaluations. These evaluations will estimate the relative plant

capital and operating costs, costs of transmission, coal delivery, and sequestration for each of the

four sites.37 SCE will also determine the cost and availability of commodities such as coal, water,

and natural gas and will evaluate the potential for off-take agreements for sulfur, glassified ash, and

carbon dioxide.38 This work is currently ongoing and is expected to be complete in approximately 7

to 10 months.39 At the end of the Site Identification Study, the most promising site for a CHPG

facility will be selected.40

After the Site Identification Study is completed, additional study is then needed to determine

the feasibility of a commercial-scale CHPG project. In this Application, SCE seeks the authority to

recover the costs necessary to conduct that study. Each of the four major components of SCE’s

proposed feasibility, as described in detail below, is necessary to determine whether a CHPG plant is

technically feasible and commercially reasonable:

a) Property and Commodity Options

Once the Site Identification Study determines the most promising site, a five-year extension

of the lease with the option to buy will be obtained for that property. SCE will also seek options on

commodities such as water and coal.41 Obtaining these property and commodity options is

necessary because SCE intends to conduct a FEED study, carbon sequestration evaluation, and an

ability-to-permit assessment on the site, and to perform these studies, longer-term property rights

and associated rights of way are required.42 An estimate of the cost of the Property and Commodity

Options is attached as Appendix B to SCE Exhibit 1/1C:

37 Id. at 32. 38 Id. at 33. 39 SCE/Nelson, Ex. 1/1C at 5. 40 SCE/Anderson, Ex. 1/1C at 33. 41 Id.42 Id.

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b) The FEED Study

A FEED Study will then be performed on the lead site to understand the specific

characteristics of the site, including fuel characteristics, and their effect on plant operation and

construction. It will also evaluate and determine the equipment necessary to run and operate the

plant and the construction effort that would be required at the site.43 Based on the FEED Study, SCE

will be able to reach a conceptual estimate of the total costs of a CHPG plant.44

An estimate of the cost of the FEED Study is attached as Appendix C to SCE Exhibit 1/1C.

This estimate is a “bottom-up” estimate performed by URS’ gasification engineering group based in

Houston, Texas.45

c) The Carbon Sequestration Evaluation

As mentioned above, SCE is evaluating two types of geologic sequestration: depleted oil

reservoirs and saline aquifers. The carbon sequestration evaluation and associated testing will

determine the required linears and equipment to deliver carbon dioxide to a carbon dioxide pipeline

or an EOR application, as well as the number and depth of sequestration wells needed for saline

aquifer sequestration. To inject carbon dioxide safely into a geologic formation, certain engineering

information must be collected to design the injection wells and sequestration field properly. In

addition, the size and movement of any resulting underground carbon dioxide plume must be

predicted so that mineral rights can be obtained and a surface monitoring program can be

developed.46 A Monitoring, Mitigation, and Verification (MMV) program will also be developed for

the sequestration site to ensure the carbon has been sequestered.47

In conducting its sequestration evaluation, SCE anticipates working with regional

partnerships established by the Department of Energy (DOE) to identify and evaluate sequestration

opportunities. The two partnerships covering the six state region of interest are the West Coast

43 Id. at 34. 44 Id.45 SCE/Anderson, 10/10/07 Tr. at 199:4-7. 46 SCE/Anderson, Ex. 1/1C at 34-35. 47 Id. at 35.

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Regional Partnership (WESTCARB) and the Southwest Regional Partnership (SWP). The SWP is

currently entering Phase III, the deployment phase, of the DOE’s carbon sequestration program. In

Phase III, the DOE requires co-funding from partners,48 but it can fund up to $67 million for carbon

sequestration test programs. Recently, SCE learned that SWP had been awarded Phase III funding

by the DOE based upon an expectation of approximately $23 million in co-funding from the SWP’s

members.49 The approximately $20 million SCE seeks for sequestration evaluation through this

Application could be used to fulfill in part that co-funding obligation if SCE determines that the

SWP’s research is relevant to the lead site selected through the Site Identification Study.50

If SCE’s Application is approved, it expects to begin the carbon sequestration evaluation in

the third or fourth quarter of 2008.51 A detailed Task List of the activities needed to be performed as

part of the Carbon Sequestration Evaluation, the costs of which were estimated by Dr. Brian J.

McPherson, the leader of the SWP, is attached as Appendix D to SCE Exhibit 1/1C.52

d) The Ability To Permit Assessment

To assess the viability of a site, permits for the plant, transmission lines, and pipelines will be

prepared and submitted. Submission of these permit applications will help identify and resolve

permitting issues as early in the process as possible and assist in determining the “ability-to-permit”

condition of the site and the proposed route of the associated linears.53

Because of the size and novelty of a CHPG plant, permitting assessments are essential to a

determination of its technical feasibility and commercial reasonableness.54 It is extremely important

to apply for permits early on and allow for public comment about this new technology.55 Ideally, the

48 SCE/Nelson, 10/9/07 Tr. at 27:13-19. 49 Ex. 104; SCE/Nelson, 10/10/07 Tr. at 154:7-155:3. 50 SCE/Nelson, 10/09/07 Tr. at 27:13-28:16. 51 SCE/Anderson, 10/10/07 Tr. at 200:11-15. 52 Id. at 199:18-27. 53 SCE/Nelson, Ex. 1/1C at 6; SCE/Anderson, Ex. 1/1C at 36. 54 SCE/Nelson, Ex. 2 at 7. 55 SCE/Anderson, 10/10/07 Tr. at 201:10-203:1.

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ability-to-permit assessment would be conducted simultaneously with the FEED Study, beginning in

early 2009.56

An estimate of the costs associated with the ability-to-permit assessment, which was

assembled by the URS power permitting group based in Santa Barbara, California, is attached as

Appendix E to SCE Exhibit 1/1C.57

e) Because the Scope of this Application Is a Feasibility Study, the Costs Should

Be Recovered From Ratepayers

In Decision 06-05-016, the Commission authorized funding for SCE’s Project Development

Division (PDD) in the amount of approximately $5 million. In that decision, the Commission

expressly permitted rate recovery of costs associated with various support functions, including

“(1) identifying locations for new generation, (2) evaluating generation technologies, (3) tracking

regulatory and legislative generation-related initiatives, and (4) the development of the [best option

outside negotiation] for future generation needs.”58 In the Commission’s words, “[t]hese support

functions are desirable and it is reasonable that they be funded in rates.”59 SCE’s proposed CHPG

feasibility study builds upon the efforts authorized in D.06-05-016 and will provide benefit to

ratepayers as well as the public more generally.60

Because of the cost of the study and the site-specific nature of determining the feasibility of

the technology scope of the feasibility study, SCE is seeking funding beyond what was authorized in

D.06-05-016. As Mr. Nelson explained during the hearing:

56 Id. at 200:28-201:4. 57 See id. at 199:28-200:7. 58 D.06-05-016, mimeo, at 52. 59 Id.60 SCE/Nelson, Ex. 2 at 2.

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[A]s we’ve moved through this process and recognized that the feasibility study is a $50 million scale, it became clear that that’s much larger than sort of the fund level granted. . . . [I]n this case, because we really do need to go to a specific site location or to make the rest of the feasibility study, it was just gray. So that kind of came together at the same time as the scale issue that this was bigger than the size of the funding. So the two worked together over the last approximately year for us to come to the realization that a project of this scale of this feasibility study should come to the Commission as a separate Application.61

But the costs SCE seeks to recover are not plant development costs. The $52 million sought

by SCE’s Application is the amount needed to determine whether a CHPG plant is technically

feasible and commercially reasonable and to provide a conceptual estimate of its costs and

performance. As Mr. Nelson emphasized at the hearing, “Again, it’s a feasibility study. This study

goes to whether or not this technology can be used to support California customers. And as a

feasibility study it’s in an earlier phase than being in a project development activity.”62 Because of

the unique nature of the emerging technology at issue, SCE must conduct its study in the context of

an actual physical site to make those determinations.63 But the site-specific aspects of the study do

not turn the costs associated with the study into plant development costs.64 As Mr. Nelson

explained, “[i]n this case because the technology has to be tied – the technology and the

sequestration need to be tied to a site, I believe those are all feasibility costs.”65 Given the benefits

to the public of this valuable study, it is reasonable and desirable that SCE be able to recover the

costs.

Finally, some of the intervenors have argued that a Request For Offer (RFO) process should

be used to select who will conduct the feasibility study and/or who will ultimately construct a CHPG

plant if the research demonstrates it is feasible. Whether a competitive solicitation or RFO process

should be used to build a CHPG plant is premature and beyond the scope of this proceeding.

Broader issues concerning utility-built versus merchant-built generation can and are being addressed

61 SCE/Nelson, 10/9/07 Tr. at 54:27-56:5. 62 Id. at 86:23-87:4. 63 SCE/Nelson, Ex. 2 at 3. 64 SCE/Nelson, 10/9/07 Tr. at 88:12-90:28. 65 Id. at 90:25-27.

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in the Long Term Procurement Proceeding (LTPP). They do not need to be resolved here for the

Commission to approve SCE’s Application, which focuses squarely on feasibility issues.

It also does not make sense to conduct an RFO process to determine who will conduct and

oversee the proposed feasibility study. SCE’s established procurement process, with its attendant

controls, can be used effectively for vendor selection and to provide SCE with an appropriate level

of “scope management” over the course of the study.66 No need for a competitive solicitation

process exists. It is also far from clear that an independent power producer (IPP) would incur the

costs associated with the feasibility study while providing the public benefit through disclosure of

study results, as SCE has promised, especially given that no IPP has yet come forward to do so.67 In

contrast, as a public utility, SCE is well positioned to conduct a feasibility study of this nature. As

Mr. Nelson explained, SCE has experience with IGCC technology and can serve as a “tool for the

Commission.”68

C. SCE Intends to Make the Results of the Study Public

Both WPTF and TURN have raised concerned about whether the information related to the

study will be made public.69

SCE believes it has adequately addressed WPTF’s and TURN’s concerns in its rebuttal and

hearing testimony. SCE’s position was succinctly summarized at the hearing: “To the extent that

disclosure would not negatively impact the interests of its ratepayers, customers, in this case, yes,

Edison plans to make the information public to the maximum extent possible.”70

SCE will need to maintain the confidentiality of potential site locations and detailed vendor

cost estimates to protect its customers, and may have to maintain vendor trade secrets.71 But, as

Mr. Nelson reiterated after explaining what kind of information might be kept confidential to avoid

commercially disadvantaging SCE’s customers: “[T]he guiding principle is to make as much public

66 Id. at 78:1-80:11. 67 SCE/Nelson, 10/9/07 Tr. at 137:27-138:20. 68 SCE/Nelson, 10/9/07 Tr. at 115:3-28. 69 WPTF/Turn/Ackerman, Ex. 200 at 2. 70 SCE/Nelson, 10/9/07 Tr. at 64:20-23. 71 SCE/Nelson, Ex. 2 at 5.

DM1424352 -16-

as possible.”72 SCE intends that its feasibility study benefit clean energy development efforts and

the public more generally, and to that end, it intends to make the information obtained public to the

greatest extent possible.

D. The Intervenors’ Concerns about SCE’s Affiliates Are Unwarranted

Like all investor-owned utilities, SCE must comply with the Commission’s extensive and

strict Affiliate Transaction Rules, which impose restrictions on the sharing of confidential

information and regulate employee transfers between SCE and its affiliates.73 These protections are

adequate to ensure that SCE’s affiliates do not unfairly benefit from the proposed feasibility study.

The hearing, counsel for WPTF introduced an exhibit that appears to be an audit of SCE’s

compliance with the Affiliate Transaction Rules.74 Through questioning of Mr. Nelson – who

indicated he was not previously aware of the document75 – WPTF attempted to suggest that SCE was

not in compliance with those rules. Yet WPTF has failed to explain how any purported

shortcomings identified by the audit will compromise the proposed feasibility study or to provide

any concrete suggestions for safeguarding information obtained in the course of the study.

Moreover, because Mr. Nelson was not aware of the audit report, he was not in a position to discuss

any remedial measures that SCE may have subsequently taken.

In any event, SCE can and will ensure that its affiliates will not unfairly benefit from the

proposed study. As discussed above, the vast bulk of the information will be made available to the

public, and SCE testified that potential site-location information and conceptual cost estimates

would not be shared with any SCE affiliates.76

SCE takes the Commission’s affiliate transaction rules seriously. In compliance with those

rules, SCE posts on its website certain transactions between SCE and its affiliates.77 SCE also

maintains an affiliate compliance department, which Mr. Nelson indicated he consults whenever an

72 SCE/Nelson, 10/9/07 Tr. at 122:6-19. 73 See D.97-12-088, D.98-08-035, and D.98-12-075. 74 See Exhibit 202. 75 SCE/Nelson, 10/9/07 Tr. at 104:1-2. 76 SCE/Nelson, 10/9/07 Tr. at 69:14-17. 77 See http://www.sce.com/AboutSCE/Regulatory/affiliatenotices/.

DM1424352 -17-

employee is leaving the company.78 And there is nothing that prevents an SCE employee from

leaving the company and immediately going to work for an independent power producer.79 Under

these circumstances, SCE’s affiliates can have no unfair advantage

E. SCE’s Proposed Costs and Ratemaking Treatment Are Reasonable

With the exception of DRA, the intervenors do not challenge SCE’s proposed costs and

ratemaking treatment. DRA believes SCE’s application should be granted in the amount of

$19.5 million, rather than the $52 million sought.80 DRA’s calculation is based upon several flawed

assumptions.

First, DRA provides no legitimate explanation for its arbitrary decision to reduce the cost of

the FEED Study from $19.4 million to $14.4 million and to reduce SCE’s labor costs to zero. SCE

has provided the Commission with detailed data to support the costs it has asked to recover from

ratepayers.81 In addition, Mr. Anderson further explained during the hearing the sources of the

“bottom-up” estimates relied upon by SCE.82 DRA’s revised figures, which are based on an

unsupported claim of unreasonableness, should not be substituted for SCE’s cost estimates.

Second, DRA is incorrect that the Carbon Sequestration Evaluation that SCE proposes is

duplicative of other efforts. SCE explicitly plans to seek partnerships with other entities where

efficient to limit duplication of effort and to leverage other research work, but many of the

sequestration issues to be evaluated are unique to SCE’s feasibility study.

Third, DRA objects to the Ability-to-Permit Assessment proposed on the basis that it

constitutes a development cost. However, as discussed, given the size and novelty of a CHPG

facility such as the one to be evaluated, complicated permitting and regulatory issues are

fundamentally feasibility questions and should be resolved as part of the proposed site-specific

study.

78 SCE/Nelson, 10/9/07 Tr. at 135:7-14. 79 Id. at 135:20-27. 80 DRA/Momoh, Ex. 100 at 7. 81 SCE/Anderson, Ex. 1C at Appendixes B through E. 82 SCE/Anderson, 10/10/07 Tr. at 198:18-200:7.

DM1424352 -18-

Each aspect of SCE’s Application is necessary to conduct properly the proposed feasibility

analysis. Given the cost information it has provided, SCE believes its Application should be

approved as submitted. Finally, there have been no objections to SCE’s proposed ratemaking. Karen

Salvato, Manager of SCE’s GRC Revenue Requirements group, testified about SCE’s proposed

ratemaking treatment of the costs associated with the proposed feasibility study. Ms. Salvato

explained that SCE proposes to establish a Clean Technology Generation Balancing Account

(CTGBA) to track expenses associated with the study on a monthly basis.83

SCE will record the actual costs incurred, including any incremental SCE operating costs.

SCE proposes that if the actual expenses recorded in the CTGBA are less than the reasonable

estimate of $52 million, no reasonableness review will be required. 84 SCE has proposed this

ratemaking because it believes it has provided sufficient built-up cost information for the

Commission to conclude that a cost figure below SCE’s estimate is de facto reasonable.85 If the

actual expenses recorded in the CTGBA exceed the amount estimated for the Plant Feasibility Work,

then the amount in excess of the funding level will be reviewed for reasonableness in the following

annual Energy Resource Recovery Account (ERRA) reasonableness proceeding.86

SCE further proposes that each year it will transfer the December balance recorded in the

CTGBA, if it is under the overall authorized funding level, to the generation sub-account of the Base

Revenue Requirement Balancing Account (BRRBA) in January of the following year. The

$52 million sought in this Application will be included in generation rate levels and recovered from

SCE’s bundled service customers.87

None of the intervenors challenge SCE’s proposed ratemaking treatment of the costs

associated with the proposed feasibility study. In fact, all parties waived the right to cross-examine

83 SCE/Salvato, Ex. 1/1C at 39. 84 Id.85 SCE/Nelson, 10/9/07 Tr. at 132:16-133:2. 86 SCE/Salvato, Ex. 1/1C at 39. 87 Id. at 40.

DM1424352 -19-

Ms. Salvato. The available and uncontested evidence establishes that SCE’s well-considered

ratemaking treatment of the feasibility study’s costs is reasonable.

III.

CONCLUSION

For the foregoing reasons, SCE respectfully requests that its Application to study the

feasibility of CHPG technology be approved as soon as possible so this important work may begin.

Dated: October 29, 2007 Respectfully submitted,

Douglas K. Porter Walker Matthews

By: /s/ Walker A. Matthews Walker A. Matthews

Attorney for SOUTHERN CALIFORNIA EDISON COMPANY

2244 Walnut Grove Avenue Post Office Box 800 Rosemead, California 91770 Tel: (626) 302-6879 Fax: (626) 302-3990 E-mail: walker.matthews@sce.com

CERTIFICATE OF SERVICE

I hereby certify that, pursuant to the Commission’s Rules of Practice and Procedure, I

have this day served a true copy of SOUTHERN CALIFORNIA EDISON COMPANY’S

OPENING BRIEF on all parties identified on the attached service list(s). Service was effected

by one or more means indicated below:

Transmitting the copies via e-mail to all parties who have provided an e-mail address. First class mail will be used if electronic service cannot be effectuated.

Executed this 29th day of October, 2007, at Rosemead, California.

/s/ Melissa Schary Melissa Schary, Project Analyst SOUTHERN CALIFORNIA EDISON COMPANY

2244 Walnut Grove Avenue Post Office Box 800 Rosemead, California 91770

- 1 -

A.07-05-020 Monday, October 29, 2007

Page 1 of 3

CASE ADMINISTRATION SOUTHERN CALIFORNIA EDISON COMPANY 2244 WALNUT GROVE AVENUE ROSEMEAD, CA 91770 A.07-05-020

ROD AOKI ATTORNEY AT LAW ALCANTAR & KAHL, LLP 120 MONTGOMERY STREET, SUITE 2200 SAN FRANCISCO, CA 94104 A.07-05-020

WILLIAM H. BOOTH ATTORNEY AT LAW LAW OFFICES OF WILLIAM H. BOOTH 1500 NEWELL AVENUE, 5TH FLOOR WALNUT CREEK, CA 94596 A.07-05-020

MIKE BOYD CALIFORNIANS FOR RENEWABLE ENERGY 24 HARBOR RD. SAN FRANCISCO, CA 94124 A.07-05-020

LYNNE BROWN CALIFORNIANS FOR RENEWABLE ENERGY, INC.24 HARBOR ROAD SAN FRANCISCO, CA 94124 A.07-05-020

AUDREY CHANG NATURAL RESOURCES DEFENSE COUNCIL 111 SUTTER STREET, 20TH FLOOR SAN FRANCISCO, CA 94104 A.07-05-020

GREG CHANG BLOOMBERG NEWS 345 CALIFORNIA ST., STE 3500 SAN FRANCISCO, CA 94104 A.07-05-020

G. ALAN COMNES NRG ENERGY, INC. 1819 ASTON STREET, SUITE 105 CARLSBAD, CA 92008 A.07-05-020

HILARY CORRIGAN CALIFORNIA ENERGY MARKETS 425 DIVISADERO STREET, SUITE 303 SAN FRANCISCO, CA 94117 A.07-05-020

THOMAS CORR SEMPRA GLOBAL 101 ASH STREET, HQ 08 C SAN DIEGO, CA 92101-3017 A.07-05-020

BRIAN T. CRAGG ATTORNEY AT LAW GOODIN, MACBRIDE, SQUERI, RITCHIE & DAY 505 SANSOME STREET, SUITE 900 SAN FRANCISCO, CA 94111 A.07-05-020

Matthew Deal CALIF PUBLIC UTILITIES COMMISSION 505 VAN NESS AVENUE ROOM 5215 SAN FRANCISCO, CA 94102-3214 A.07-05-020

LEONRAD R. DEVANNA EXECUTIVE VICE PRESIDENT CLEAN ENERGY SYSTEMS, INC. 3035M PROSPECT PARK DRIVE RANCHO CORDOVA, CA 95670-6071 A.07-05-020

DANIEL W. DOUGLASS ATTORNEY AT LAW DOUGLASS & LIDDELL 21700 OXNARD STREET, SUITE 1030 WOODLAND HILLS, CA 91367 A.07-05-020

Kevin R. Dudney CALIF PUBLIC UTILITIES COMMISSION 505 VAN NESS AVENUE AREA 4-A SAN FRANCISCO, CA 94102-3214 A.07-05-020

ROBERT FINKELSTEIN ATTORNEY AT LAW THE UTILITY REFORM NETWORK 711 VAN NESS AVE., SUITE 350 SAN FRANCISCO, CA 94102 A.07-05-020

MATT GONZALES PACIFIC GAS AND ELECTRIC COMPANY PO BOX 770000, MAIL CODE B9A SAN FRANCISCO, CA 94177 A.07-05-020

CHRISTOPHER HILEN ASSISTANT GENERAL COUNSEL SIERRA PACIFIC POWER COMPANY 6100 NEIL ROAD RENO, NV 89511 A.07-05-020

A.07-05-020 Monday, October 29, 2007

Page 2 of 3

DAVID L. HUARD ATTORNEY AT LAW MANATT, PHELPS & PHILLIPS, LLP 11355 WEST OLYMPIC BOULEVARD LOS ANGELES, CA 90064 A.07-05-020

EVELYN KAHL ATTORNEY AT LAW ALCANTAR & KAHL, LLP 120 MONTGOMERY STREET, SUITE 2200 SAN FRANCISCO, CA 94104 A.07-05-020

RANDALL W. KEEN ATTORNEY AT LAW MANATT PHELPS & PHILLIPS, LLP 11355 WEST OLYMPIC BLVD. LOS ANGELES, CA 90064 A.07-05-020

STEVEN KELLY POLICY DIRECTOR INDEPENDENT ENERGY PRODUCERS ASSN 1215 K STREET, SUITE 900 SACRAMENTO, CA 95814 A.07-05-020

RANDALL T KIM BRUNE & RICHARD, LLP 235 CALIFORNIA ST. SAN FRANCISCO, CA 94107 A.07-05-020

DEAN KINPORTS SAN DIEGO GAS AND ELECTRIC 555 W. 5TH STREET, GT14D6 LOS ANGELES, CA 90013 A.07-05-020

ANNE W. KUYKENDALL FOLGER LEVIN & KAHN LLP 275 BATTERY STREET, 23RD FLOOR SAN FRANCISCO, CA 94111 A.07-05-020

STEPHANIE LA SHAWN PACIFIC GAS AND ELECTRIC COMPANY PO BOX 770000, MAIL CODE B9A SAN FRANCISCO, CA 94177 A.07-05-020

CLARE LAUFENBERG CALIFORNIA ENERGY COMMISSION 1516 NINTH STREET, MS 46 SACRAMENTO, CA 95814 A.07-05-020

RONALD LIEBERT ATTORNEY AT LAW CALIFORNIA FARM BUREAU FEDERATION 2300 RIVER PLAZA DRIVE SACRAMENTO, CA 95833 A.07-05-020

DAVID LLOYD REGIONAL GENERAL COUNSEL NRG ENERGY 1819 ASTON AVENIE, SUITE 105 CARLSBAD, CA 92008 A.07-05-020

ED LUCHA CASE COORDINATOR PACIFIC GAS AND ELECTRIC COMPANY PO BOX 770000, MAIL CODE B9A SAN FRANCISCO, CA 94177 A.07-05-020

Jaclyn Marks CALIF PUBLIC UTILITIES COMMISSION 505 VAN NESS AVENUE ROOM 5306 SAN FRANCISCO, CA 94102-3214 A.07-05-020

BILL MANHEIM PACIFIC GAS AND ELECTRIC COMPANY PO BOX 770000, MAIL CODE B30A SAN FRANCISCO, CA 94177 A.07-05-020

WALKER A. MATTHEWS, III SOUTHERN CALIFORNIA EDISON COMPANY 2244 WALNUT GROVE AVENUE, ROOM 390 ROSEMEAD, CA 91770 A.07-05-020

Rahmon Momoh CALIF PUBLIC UTILITIES COMMISSION 505 VAN NESS AVENUE ROOM 4205 SAN FRANCISCO, CA 94102-3214 A.07-05-020

CHRISTOPHER C O'HARA ASSISTANT GENERAL COUNSEL-REGULATORY NRG ENERGY 211 CARNEGIE CENTER DRIVE PRINCETON, NJ 8540 A.07-05-020

Noel Obiora CALIF PUBLIC UTILITIES COMMISSION 505 VAN NESS AVENUE ROOM 4107 SAN FRANCISCO, CA 94102-3214 A.07-05-020

A.07-05-020 Monday, October 29, 2007

Page 3 of 3

SUMA PEESAPATI ADAMS BROADWELL JOSEPH & CARDOZO 601 GATEWAY BLVD., SUITE 1000 SOUTH SAN FRANCISCO, CA 94080 A.07-05-020

GEORGE PERIDAS CLIMATE CENTER SCIENCE FELLOW NATURAL RESOURCES DEFENSE COUNCIL 1200 NEW YORK AVENUE NW, SUITE 400 WASHINGTON, DC 20005 A.07-05-020

DOUGLAS K. PORTER ATTORNEY AT LAW SOUTHERN CALIFORNIA EDISON COMPANY 2244 WALNUT GROVE AVENUE ROSEMEAD, CA 91770 A.07-05-020

VIDHYA PRABHAKARAN GOODIN,MACBRIDE,SQUERI,DAY,LAMPREY 505 SANSOME STREET, SUITE 900 SAN FRANCISCO, CA 94111 A.07-05-020

RASHA PRINCE SOUTHERN CALIFORNIA GAS COMPANY 555 WEST 5TH STREET, GT14D6 LOS ANGELES, CA 90013 A.07-05-020

CHRIS RAPHAEL CALIFORNIA ENERGY MARKETS 517-B POTRERO AVENUE SAN FRANCISCO, CA 94117 A.07-05-020

THEODORE E. ROBERTS ATTORNEY AT LAW SEMPRA ENERGY 101 ASH STREET, HQ 12B SAN DIEGO, CA 92101-3017 A.07-05-020

JAMES ROSS RCS, INC. 500 CHESTERFIELD CENTER, SUITE 320 CHESTERFIELD, MO 63017 A.07-05-020

JENNIFER SHIGEKAWA ATTORNEY AT LAW SOUTHERN CALIFORNIA EDISON COMPANY 2244 WALNUT GROVE AVENUE ROSEMEAD, CA 91770 A.07-05-020

NINA SUETAKE ATTORNEY AT LAW THE UTILITY REFORM NETWORK 711 VAN NESS AVE., STE 350 SAN FRANCISCO, CA 94102 A.07-05-020

KAREN TERRANOVA ALCANTAR & KAHL, LLP 120 MONTGOMERY STREET, STE 2200 SAN FRANCISCO, CA 94104 A.07-05-020

JAMES WEIL DIRECTOR AGLET CONSUMER ALLIANCE PO BOX 37 COOL, CA 95614 A.07-05-020

WILLIAM W. WESTERFIELD III ATTORNEY AT LAW ELLISON, SCHNEIDER & HARRIS L.L.P. 2015 H STREET SACRAMENTO, CA 95814 A.07-05-020

S. NANCY WHANG ATTORNEY AT LAW MANATT, PHELPS & PHILLIPS, LLP 11355 WEST OLYMPIC BLVD. LOS ANGELES, CA 90064 A.07-05-020

Amy C Yip-Kikugawa CALIF PUBLIC UTILITIES COMMISSION 505 VAN NESS AVENUE ROOM 5135 SAN FRANCISCO, CA 94102-3214 A.07-05-020

MARK W. ZIMMERMANN PACIFIC GAS AND ELECTRIC COMPANY PO BOX 770000, MAIL CODE B9A SAN FRANCISCO, CA 94177 A.07-05-020

MRW AND ASSOCIATES, INC. 1814 FRANKLIN STREET, SUITE 720 OAKLAND, CA 94612 A.07-05-020